POLICIES & PROCEDURES OF THE INTERNAL AUDIT ACTIVITY

 

 


Internal auditing is conducted in diverse legal and cultural environments; within organizations that vary in purpose, size, complexity, and structure; and by persons within or outside the organization. While differences may affect the practice of internal auditing in each environment, conformance with The IIAís International Standards for the Professional Practice of Internal Auditing (Standards) is essential in meeting the responsibilities of internal auditors and the internal audit activity.[1]

 

If internal auditors or the internal audit activity is prohibited by law or regulation from conformance with certain parts of the Standards, conformance with all other parts of the Standards and appropriate disclosures are needed.

 

If the Standards are used in conjunction with standards issued by other authoritative bodies, audit communications may also cite the use of other standards, as appropriate. In such a case, if inconsistencies exist between the Standards and other standards, internal auditors and the internal audit activity must conform with the Standards, and may conform with the other standards if they are more restrictive.

 

The purpose of the Standards is to:

 

1. Delineate basic principles that represent the practice of internal auditing.

2. Provide a framework for performing and promoting a broad range of value-added internal auditing.

3. Establish the basis for the evaluation of internal audit performance.

4. Foster improved organizational processes and operations.

 

The Standards are principles-focused, mandatory requirements consisting of:Statements of basic requirements for the professional practice of internal auditing and for evaluating the effectiveness of performance, which are internationally applicable at organizational and individual levels.Interpretations, which clarify terms or concepts within the Statements.The Standards employ terms that have been given specific meanings that are included in the Glossary. Specifically, the Standards use the word ďmustĒ to specify an unconditional requirement and the word ďshouldĒ where conformance is expected unless, when applying professional judgment, circumstances justify deviation.

 

It is necessary to consider the Statements and their Interpretations as well as the specific meanings from the Glossary to understand and apply the Standards correctly.

 

The structure of the Standards includes Attribute, Performance, and Implementation Standards.Attribute Standards address the attributes of organizations and individuals performing internal audit services. The Performance Standards describe the nature of internal audit services and provide quality criteria against which the performance of these services can be measured. The Attribute and Performance Standards apply to all internal audit services. The Implementation Standards expand upon the Attribute and Performance Standards, providing the requirements applicable to assurance (A) or consulting (C) activities.

 

Assurance services involve the internal auditorís objective assessment of evidence to provide an independent opinion or conclusions regarding an entity, an operation, a function, a process, system, or other subject matter. The nature and scope of the assurance engagement are determined by the internal auditor. There are generally three parties involved in assurance services:

 

(1)The person or group directly involved with the entity, operation, function, process, system, or other subject matter - the process owner,

 

(2) The person or group making the assessment - the internal auditor, and

 

(3) The person or group using the assessment Ė the user.

 

Consulting services are advisory in nature, and are generally performed at the specific request of an engagement client. The nature and scope of the consulting engagement are subject to agreement with the engagement client. Consulting services generally involve two parties:

 

(1) The person or group offering the advice - the internal auditor, and

 

(2) The person or group seeking and receiving the advice - the engagement client.

 

When performing consulting services the internal auditor should maintain objectivity and not assume management responsibility.


ATTRIBUTE STANDARDS

 

1000 Purpose, Authority, and Responsibility

The purpose, authority, and responsibility of the internal audit activity must be formally defined in an internal audit charter, consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. The chief audit executive must periodically review the internal audit charter and present it to senior management and the Board of Trustees for approval.

 

Interpretation:

The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. The internal audit charter establishes the internal audit activity's position within the organization; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities.Final approval of the internal audit charter resides with the Board of Trustees.

 

1000.A1 - The nature of assurance services provided to the organization must be defined in the internal audit charter. If assurances are to be provided to parties outside the organization, the nature of these assurances must also be defined in the internal audit charter.

 

1000.C1 - The nature of consulting services must be defined in the internal audit charter.

 

1010 Recognition of the Definition of Internal Auditing, the Code of Ethics, and the Standards in the Internal Audit Charter

The mandatory nature of the Definition of Internal Auditing, the Code of Ethics, and the Standards must be recognized in the internal audit charter. The chief audit executive should discuss the Definition of Internal Auditing, the Code of Ethics, and the Standards with senior management and the Board of Trustees.

 

1100 Independence and Objectivity

The internal audit activity must be independent, and internal auditors must be objective in performing their work.

 

Interpretation:

Independence is the freedom from conditions that threaten the ability of the internal audit activity or the chief audit executive to carry out internal audit responsibilities in an unbiased manner. To achieve the degree of independence necessary to effectively carry out the responsibilities of the internal audit activity, the chief audit executive has direct and unrestricted access to senior management and the Board of Trustees. This can be achieved through a dual-reporting relationship. Threats to independence must be managed at the individual auditor, engagement, functional, and organizational levels.

 

Objectivity is an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made. Objectivity requires that internal auditors do not subordinate their judgment on audit matters to others. Threats to objectivity must be managed at the individual auditor, engagement, functional, and organizational levels.

 

1110 Organizational Independence

The chief audit executive must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The chief audit executive must confirm to the Board of Trustees, at least annually, the organizational independence of the internal audit activity.

 

1110.A1 - The internal audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results.

 

1111 Direct Interaction With the Board

The chief audit executive must communicate and interact directly with the Board of Trustees.

 

1120 Individual Objectivity

Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.

 

Interpretation:

Conflict of interest is a situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest. Such competing interests can make it difficult to fulfill his or her duties impartially. A conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession. A conflict of interest could impair an individual's ability to perform his or her duties and responsibilities objectively.

 

1130 Impairment to Independence or Objectivity

If independence or objectivity is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties. The nature of the disclosure will depend upon the impairment.

 

Interpretation:

Impairment to organizational independence and individual objectivity may include, but is not limited to, personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations, such as funding.

The determination of appropriate parties to which the details of an impairment to independence or objectivity must be disclosed is dependent upon the expectations of the internal audit activityís and the chief audit executiveís responsibilities to senior management and the board as described in the internal audit charter, as well as the nature of the impairment.

 

1130.A1 - Internal auditors must refrain from assessing specific operations for which they were previously responsible. Objectivity is presumed to be impaired if an internal auditor provides assurance services for an activity for which the internal auditor had responsibility within the previous year.

 

1130.A2 - Assurance engagements for functions over which the chief audit executive has responsibility must be overseen by a party outside the internal audit activity.

 

1130.C1 - Internal auditors may provide consulting services relating to operations for which they had previous responsibilities.

 

1130.C2 - If internal auditors have potential impairments to independence or objectivity relating to proposed consulting services, disclosure must be made to the engagement client prior to accepting the engagement.

 

1200 Proficiency and Due Professional Care

Engagements must be performed with proficiency and due professional care.

 

1210 Proficiency

Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities. The internal audit activity collectively must possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities.

 

Interpretation:

Knowledge, skills, and other competencies is a collective term that refers to the professional proficiency required of internal auditors to effectively carry out their professional responsibilities.Internal auditors are encouraged to demonstrate their proficiency by obtaining appropriate professional certifications and qualifications, such as the Certified Internal Auditor designation and other designations offered by The Institute of Internal Auditors and other appropriate professional organizations.

 

1210.A1 - The chief audit executive must obtain competent advice and assistance if the internal auditors lack the knowledge, skills, or other competencies needed to perform all or part of the engagement.

 

1210.A2 - Internal Auditors must have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by the organization, but are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud.

 

1210.A3 - Internal auditors must have sufficient knowledge of key information technology risks and controls and available technology-based audit techniques to perform their assigned work. However, not all internal auditors are expected to have the expertise of an internal auditor whose primary responsibility is information technology auditing.

 

1210.C1 - The chief audit executive must decline the consulting engagement or obtain competent advice and assistance if the internal auditors lack the knowledge, skills, or other competencies needed to perform all or part of the engagement.

 

1220 Due Professional Care Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility.

 

1220.A1 - Internal auditors must exercise due professional care by considering the:

         Extent of work needed to achieve the engagementís objectives;

         Relative complexity, materiality, or significance of matters to which assurance procedures are applied;

         Adequacy and effectiveness of governance, risk management, and control processes;

         Probability of significant errors, fraud, or noncompliance; and

         Cost of assurance in relation to potential benefits.

 

1220.A2 - In exercising due professional care internal auditors must consider the use of technology-based audit and other data analysis techniques.

 

1220.A3 - Internal auditors must be alert to the significant risks that might affect objectives, operations, or resources. However, assurance procedures alone, even when performed with due professional care, do not guarantee that all significant risks will be identified.

 

1220.C1 - Internal auditors must exercise due professional care during a consulting engagement by considering the:

         Needs and expectations of clients, including the nature, timing, and communication of engagement results;

         Relative complexity and extent of work needed to achieve the engagementís objectives; and

         Cost of the consulting engagement in relation to potential benefits.

 

1230 Continuing Professional Development

Internal auditors must enhance their knowledge, skills, and other competencies through continuing professional development.ďAuditors performing work under GAGAS, including planning, directing, performing field work, or reporting on an audit or attestation engagement under GAGAS, should maintain their professional competence through continuing professional education (CPE). Therefore, each auditor performing work under GAGAS should complete, every 2 years, at least 24 hours of CPE that directly relates to government auditing, the government environment, or the specific or unique environment in which the audited entity operates. For auditors who are involved in any amount of planning, directing, or reporting on GAGAS assignments and those auditors who are not involved in those activities but charge 20 percent or more of their time annually to GAGAS assignments should also obtain at least an additional 56 hours of CPE (for a total of 80 hours of CPE in every 2- year period) that enhances the auditor's professional proficiency to perform audits or attestation engagements. Auditors required to take the total 80 hours of CPE should complete at least 20 hours of CPE in each year of the 2-year period. [2]

 

1300 Quality Assurance and Improvement Program

The chief audit executive must develop and maintain a quality assurance and improvement program that covers all aspects of the internal audit activity.

 

Interpretation:

A quality assurance and improvement program is designed to enable an evaluation of the internal audit activityís conformance with the Definition of Internal Auditing and the Standards and an evaluation of whether internal auditors apply the Code of Ethics. The program also assesses the efficiency and effectiveness of the internal audit activity and identifies opportunities for improvement.

 

1310 Requirements of the Quality Assurance and Improvement Program

The quality assurance and improvement program must include both internal and external assessments.

 

1311 Internal Assessments

Internal assessments must include:

v      Ongoing monitoring of the performance of the internal audit activity; and

v      Periodic reviews performed through self-assessment or by other persons within the organization with sufficient knowledge of internal audit practices.

 

Interpretation:

Ongoing monitoring is an integral part of the day-to-day supervision, review, and measurement of the internal audit activity. Ongoing monitoring is incorporated into the routine policies and practices used to manage the internal audit activity and uses processes, tools, and information considered necessary to evaluate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards.

 

Periodic reviews are assessments conducted to evaluate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards.Sufficient knowledge of internal audit practices requires at least an understanding of all elements of the International Professional Practices Framework.


 

1312 External Assessments

External assessments must be conducted at least once every five years by a qualified, independent reviewer or review team from outside the organization. The chief audit executive must discuss with the Board of Trustees:

 

  • The need for more frequent external assessments; and
  • The qualifications and independence of the external reviewer or review team, including any potential conflict of interest.

 

Each audit organization performing audits or attestation engagements in accordance with GAGAS must:[3]

 

  • Establish a system of quality control that is designed to provide the audit organization with reasonable assurance that the organization and its personnel comply with professional standards and applicable legal and regulatory requirements, and

         Have an external peer review at least once every 3 years

Interpretation:

A qualified reviewer or review team consists of individuals who are competent in the professional practice of internal auditing and the external assessment process. The evaluation of the competency of the reviewer and review team is a judgment that considers the professional internal audit experience and professional credentials of the individuals selected to perform the review. The evaluation of qualifications also considers the size and complexity of the organizations that the reviewers have been associated with in relation to the organization for which the internal audit activity is being assessed, as well as the need for particular sector, industry, or technical knowledge.

 

An independent reviewer or review team means not having either a real or an apparent conflict of interest and not being a part of, or under the control of, the organization to which the internal audit activity belongs.

 

1320 Reporting on the Quality Assurance and Improvement Program

The chief audit executive must communicate the results of the quality assurance and improvement program to senior management and the board.

 

Interpretation:

The form, content, and frequency of communicating the results of the quality assurance and improvement program is established through discussions with senior management and the board and considers the responsibilities of the internal audit activity and chief audit executive as contained in the internal audit charter. To demonstrate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards, the results of external and periodic internal assessments are communicated upon completion of such assessments and the results of ongoing monitoring are communicated at least annually. The results include the reviewerís or review teamís assessment with respect to the degree of conformance.

 

1321 Use of Conforms with the International Standards for the Professional Practice of Internal Auditing

The chief audit executive may state that the internal audit activity conforms with the International Standards for the Professional Practice of Internal Auditing only if the results of the quality assurance and improvement program support this statement.

 

1322 Disclosure of Nonconformance

When nonconformance with the Definition of Internal Auditing, the Code of Ethics, or the Standards impacts the overall scope or operation of the internal audit activity, the chief audit executive must disclose the nonconformance and the impact to senior management and the board.


PERFORMANCE STANDARDS

 

2000 Managing the Internal Audit Activity

The chief audit executive must effectively manage the internal audit activity to ensure it adds value to the organization.

 

Interpretation:

The internal audit activity is effectively managed when:

         The results of the internal audit activityís work achieve the purpose and responsibility included in the internal audit charter;

         The internal audit activity conforms with the Definition of Internal Auditing and the Standards; and

         The individuals who are part of the internal audit activity demonstrate conformance with the Code of Ethics and the Standards.

 

2010 Planning

The chief audit executive must establish risk-based plans to determine the priorities of the internal audit activity, consistent with the organizationís goals.

 

Interpretation:

The chief audit executive is responsible for developing a risk-based plan. The chief audit executive takes into account the organizationís risk management framework, including using risk appetite levels set by management for the different activities or parts of the organization. If a framework does not exist, the chief audit executive uses his/her own judgment of risks after consultation with senior management and the board.

 

2010.A1 - The internal audit activityís plan of engagements must be based on a documented risk assessment, undertaken at least annually. The input of senior management and the Board of Trustees must be considered in this process.

 

2010.C1 - The chief audit executive should consider accepting proposed consulting engagements based on the engagementís potential to improve management of risks, add value, and improve the organizationís operations. Accepted engagements must be included in the plan.

 

2020 Communication and Approval

The chief audit executive must communicate the internal audit activityís plans and resource requirements, including significant interim changes, to senior management and the board for review and approval. The chief audit executive must also communicate the impact of resource limitations.

 

2030 Resource Management

The chief audit executive must ensure that internal audit resources are appropriate, sufficient, and effectively deployed to achieve the approved plan.


Interpretation:

Appropriate refers to the mix of knowledge, skills, and other competencies needed to perform the plan. Sufficient refers to the quantity of resources needed to accomplish the plan. Resources are effectively deployed when they are used in a way that optimizes the achievement of the approved plan.

 

2040 Policies and Procedures

The chief audit executive must establish policies and procedures to guide the internal audit activity.

 

Interpretation:

The form and content of policies and procedures are dependent upon the size and structure of the internal audit activity and the complexity of its work.

 

2050 Coordination

The chief audit executive should share information and coordinate activities with other internal and external providers of assurance and consulting services to ensure proper coverage and minimize duplication of efforts.

 

2060 Reporting to Senior Management and the Board

The chief audit executive must report periodically to senior management and the Board of Trustees on the internal audit activityís purpose, authority, responsibility, and performance relative to its plan.Reporting must also include significant risk exposures and control issues, including fraud risks, governance issues, and other matters needed or requested by senior management and the Board of Trustees.

 

Interpretation:

The frequency and content of reporting are determined in discussion with senior management and the Board of Trustees and depend on the importance of the information to be communicated and the urgency of the related actions to be taken by senior management or the Board of Trustees.

 

2100 Nature of Work

The internal audit activity must evaluate and contribute to the improvement of governance, risk management, and control processes using a systematic and disciplined approach.

 

2110 Governance

The internal audit activity must assess and make appropriate recommendations for improving the governance process in its accomplishment of the following objectives:

         Promoting appropriate ethics and values within the organization;

         Ensuring effective organizational performance management and accountability;

         Communicating risk and control information to appropriate areas of the organization; and

         Coordinating the activities of and communicating information among the board, external and internal auditors, and management.


2110.A1 - The internal audit activity must evaluate the design, implementation, and effectiveness of the organizationís ethics-related objectives, programs, and activities.

 

2110.A2 - The internal audit activity must assess whether the information technology governance of the organization sustains and supports the organizationís strategies and objectives.

 

2110.C1 - Consulting engagement objectives must be consistent with the overall values and goals of the organization.

 

2120 Risk Management

The internal audit activity must evaluate the effectiveness and contribute to the improvement of risk management processes.

 

Interpretation:

Determining whether risk management processes are effective is a judgment resulting from the internal auditorís assessment that:

         Organizational objectives support and align with the organizationís mission;

         Significant risks are identified and assessed;

         Appropriate risk responses are selected that align risks with the organizationís risk appetite; and

         Relevant risk information is captured and communicated in a timely manner across the organization, enabling staff, management, and the board to carry out their responsibilities.

 

Risk management processes are monitored through ongoing management activities, separate evaluations, or both.

 

2120.A1 - The internal audit activity must evaluate risk exposures relating to the organizationís governance, operations, and information systems regarding the:

         Reliability and integrity of financial and operational information.

         Effectiveness and efficiency of operations.

         Safeguarding of assets; and

         Compliance with laws, regulations, and contracts.

 

2120.A2 - The internal audit activity must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk.

 

2120.C1 - During consulting engagements, internal auditors must address risk consistent with the engagementís objectives and be alert to the existence of other significant risks.

 

2120.C2 - Internal auditors must incorporate knowledge of risks gained from consulting engagements into their evaluation of the organizationís risk management processes.

 

2120.C3 - When assisting management in establishing or improving risk management processes, internal auditors must refrain from assuming any management responsibility by actually managing risks.

 

2130 Control

The internal audit activity must assist the organization in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement.

 

2130.A1 - The internal audit activity must evaluate the adequacy and effectiveness of controls in responding to risks within the organizationís governance, operations, and information systems regarding the:

         Reliability and integrity of financial and operational information;

         Effectiveness and efficiency of operations;

         Safeguarding of assets; and

         Compliance with laws, regulations, and contracts.

 

2130.A2 - Internal auditors should ascertain the extent to which operating and program goals and objectives have been established and conform to those of the organization.

 

2130.A3 - Internal auditors should review operations and programs to ascertain the extent to which results are consistent with established goals and objectives to determine whether operations and programs are being implemented or performed as intended.

 

2130.C1 - During consulting engagements, internal auditors must address controls consistent with the engagementís objectives and be alert of significant control issues.

 

2130.C2 - Internal auditors must incorporate knowledge of controls gained from consulting engagements into evaluation of the organizationís control processes.

 

2200 Engagement Planning

Internal auditors must develop and document a plan for each engagement, including the engagementís objectives, scope, timing, and resource allocations.

 

2201 Planning Considerations

In planning the engagement, internal auditors must consider:

         The objectives of the activity being reviewed and the means by which the activity controls its performance;

         The significant risks to the activity, its objectives, resources, and operations and the means by which the potential impact of risk is kept to an acceptable level;

         The adequacy and effectiveness of the activityís risk management and control processes compared to a relevant control framework or model; and

         The opportunities for making significant improvements to the activityís risk management and control processes.

 

2201.A1 - When planning an engagement for parties outside the organization, internal auditors must establish a written understanding with them about objectives, scope, respective responsibilities, and other expectations, including restrictions on distribution of the results of the engagement and access to engagement records.

 

2201.C1 - Internal auditors must establish an understanding with consulting engagement clients about objectives, scope, respective responsibilities, and other client expectations.For significant engagements, this understanding must be documented.

 

2210 Engagement Objectives

Objectives must be established for each engagement.

 

2210.A1 - Internal auditors must conduct a preliminary assessment of the risks relevant to the activity under review. Engagement objectives must reflect the results of this assessment.

 

2210.A2 - Internal auditors must consider the probability of significant errors, fraud, noncompliance, and other exposures when developing the engagement objectives.

 

2210.A3 - Adequate criteria are needed to evaluate controls. Internal auditors must ascertain the extent to which management has established adequate criteria to determine whether objectives and goals have been accomplished. If adequate, internal auditors must use such criteria in their evaluation. If inadequate, internal auditors must work with management to develop appropriate evaluation criteria.

 

2210.C1 - Consulting engagement objectives must address governance, risk management, and control processes to the extent agreed upon with the client.

 

2220 Engagement Scope

The established scope must be sufficient to satisfy the objectives of the engagement.

 

2220.A1 - The scope of the engagement must include consideration of relevant systems, records, personnel, and physical properties, including those under the control of third parties.

 

2220.A2 - If significant consulting opportunities arise during an assurance engagement, a specific written understanding as to the objectives, scope, respective responsibilities, and other expectations should be reached and the results of the consulting engagement communicated in accordance with consulting standards.

 

2220.C1 - In performing consulting engagements, internal auditors must ensure that the scope of the engagement is sufficient to address the agreed-upon objectives. If internal auditors develop reservations about the scope during the engagement, these reservations must be discussed with the client to determine whether to continue with the engagement.

 

2230 Engagement Resource Allocation

Internal auditors must determine appropriate and sufficient resources to achieve engagement objectives based on an evaluation of the nature and complexity of each engagement, time constraints, and available resources.

 

2240 Engagement Work Program

Internal auditors must develop and document work programs that achieve the engagement objectives.

 

2240.A1 - Work programs must include the procedures for identifying, analyzing, evaluating, and documenting information during the engagement. The work program must be approved prior to its implementation, and any adjustments approved promptly.

 

2240.C1 - Work programs for consulting engagements may vary in form and content depending upon the nature of the engagement.

 

2300 Performing the Engagement

Internal auditors must identify, analyze, evaluate, and document sufficient information to achieve the engagementís objectives.

 

2310 Identifying Information

Internal auditors must identify sufficient, reliable, relevant, and useful information to achieve the engagementís objectives.

 

Interpretation:

Sufficient information is factual, adequate, and convincing so that a prudent, informed person would reach the same conclusions as the auditor. Reliable information is the best attainable information through the use of appropriate engagement techniques. Relevant information supports engagement observations and recommendations and is consistent with the objectives for the engagement. Useful information helps the organization meet its goals.

 

2320 Analysis and Evaluation

Internal auditors must base conclusions and engagement results on appropriate analyses and evaluations.


2330 Documenting Information

Internal auditors must document relevant information to support the conclusions and engagement results.

 

2330.A1 - The chief audit executive must control access to engagement records. The chief audit executive must obtain the approval of senior management and/or legal counsel prior to releasing such records to external parties, as appropriate.

 

2330.A2 - The chief audit executive must develop retention requirements for engagement records, regardless of the medium in which each record is stored. These retention requirements must be consistent with the organizationís guidelines and any pertinent regulatory or other requirements.All recent audits dated back to five fiscal years will be kept at the Office of the Internal Auditor.Older engagements will be stored at the Districtís warehouse.

 

2330.C1 - The chief audit executive must develop policies governing the custody and retention of consulting engagement records, as well as their release to internal and external parties. These policies must be consistent with the organizationís guidelines and any pertinent regulatory or other requirements.

 

2340 Engagement Supervision

Engagements must be properly supervised to ensure objectives are achieved, quality is assured, and staff is developed.

 

Interpretation:

The extent of supervision required will depend on the proficiency and experience of internal auditors and the complexity of the engagement. The chief audit executive has overall responsibility for supervising the engagement, whether performed by or for the internal audit activity, but may designate appropriately experienced members of the internal audit activity to perform the review. Appropriate evidence of supervision is documented and retained.

 

2400 Communicating Results

Internal auditors must communicate the engagement results.

 

2410 Criteria for Communicating

Communications must include the engagementís objectives and scope as well as applicable conclusions, recommendations, and action plans.

 

2410.A1 - Final communication of engagement results must, where appropriate, contain internal auditorsí overall opinion and/or conclusions.

 

2410.A2 - Internal auditors are encouraged to acknowledge satisfactory performance in engagement communications.

 

2410.A3 - When releasing engagement results to parties outside the organization, the communication must include limitations on distribution and use of the results.

 

2410.C1 - Communication of the progress and results of consulting engagements will vary in form and content depending upon the nature of the engagement and the needs of the client.

 

2420 Quality of Communications

Communications must be accurate, objective, clear, concise, constructive, complete, and timely.

 

Interpretation:

Accurate communications are free from errors and distortions and are faithful to the underlying facts. Objective communications are fair, impartial, and unbiased and are the result of a fair-minded and balanced assessment of all relevant facts and circumstances. Clear communications are easily understood and logical, avoiding unnecessary technical language and providing all significant and relevant information. Concise communications are to the point and avoid unnecessary elaboration, superfluous detail, redundancy, and wordiness. Constructive communications are helpful to the engagement client and the organization and lead to improvements where needed. Complete communications lack nothing that is essential to the target audience and include all significant and relevant information and observations to support recommendations and conclusions. Timely communications are opportune and expedient, depending on the significance of the issue, allowing management to take appropriate corrective action.

 

2421 Errors and Omissions

If a final communication contains a significant error or omission, the chief audit executive must communicate corrected information to all parties who received the original communication.

 

2430 Use of ďConducted in Conformance with the International Standards for the Professional Practice of Internal AuditingĒ

Internal auditors may report that their engagements are conducted in conformance with the International Standards for the Professional Practice of Internal Auditing, only if the results of the quality assurance and improvement program support the statement.

 

2431 Engagement Disclosure of Nonconformance

When nonconformance with the Definition of Internal Auditing, the Code of Ethics or the

Standards impacts a specific engagement, communication of the results must disclose the:

         Principle or rule of conduct of the Code of Ethics or Standard(s) with which full conformance was not achieved;

         Reason(s) for nonconformance; and

         Impact of nonconformance on the engagement and the communicated engagement results.


2440 Disseminating Results

The chief audit executive must communicate results to the appropriate parties.

 

Interpretation:

The chief audit executive or designee reviews and approves the final engagement communication before issuance and decides to whom and how it will be disseminated.

 

2440.A1 - The chief audit executive is responsible for communicating the final results to parties who can ensure that the results are given due consideration.

 

2440.A2 - If not otherwise mandated by legal, statutory, or regulatory requirements, prior to releasing results to parties outside the organization the chief audit executive must:

         Assess the potential risk to the organization;

         Consult with senior management and/or legal counsel as appropriate; and

         Control dissemination by restricting the use of the results.

 

2440.C1 - The chief audit executive is responsible for communicating the final results of consulting engagements to clients.

 

2440.C2 - During consulting engagements, governance, risk management, and control issues may be identified. Whenever these issues are significant to the organization, they must be communicated to senior management and the Board of Trustees.

 

2500 Monitoring Progress

The chief audit executive must establish and maintain a system to monitor the disposition of results communicated to management.

 

2500.A1 - The chief audit executive must establish a follow-up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.

 

2500.C1 - The internal audit activity must monitor the disposition of results of consulting engagements to the extent agreed upon with the client.

 

2600 Resolution of Senior Management s Acceptance of Risks

When the chief audit executive believes that senior management has accepted a level of residual risk that may be unacceptable to the organization, the chief audit executive must discuss the matter with senior management. If the decision regarding residual risk is not resolved, the chief audit executive must report the matter to the Board of Trustees for resolution.


GLOSSARY

 

Add Value

Value is provided by improving opportunities to achieve organizational objectives, identifying operational improvement, and/or reducing risk exposure through both assurance and consulting services.

 

Adequate Control

Present if management has planned and organized (designed) in a manner that provides reasonable assurance that the organizationís risks have been managed effectively and that the organizationís goals and objectives will be achieved efficiently and economically.

 

Assurance Services

An objective examination of evidence for the purpose of providing an independent assessment on governance, risk management, and control processes for the organization. Examples may include financial, performance, compliance, system security, and due diligence engagements.

 

Board

A board is an organizationís governing body, such as a board of directors, supervisory board, head of an agency or legislative body, board of governors or trustees of a nonprofit organization, or any other designated body of the organization, including the audit committee to whom the chief audit executive may functionally report.

 

Charter

The internal audit charter is a formal document that defines the internal audit activityís purpose, authority, and responsibility. The internal audit charter establishes the internal audit activityís position within the organization; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities.

 

Chief Audit Executive

Chief audit executive is a senior position within the organization responsible for internal audit activities. Normally, this would be the internal audit director. In the case where internal audit activities are obtained from external service providers, the chief audit executive is the person responsible for overseeing the service contract and the overall quality assurance of these activities, reporting to senior management and the board regarding internal audit activities, and follow-up of engagement results. The term also includes titles such as general auditor, head of internal audit, chief internal auditor, and inspector general.

 

Code of Ethics

The Code of Ethics of The Institute of Internal Auditors (IIA) are Principles relevant to the profession and practice of internal auditing, and Rules of Conduct that describe behavior expected of internal auditors. The Code of Ethics applies to both parties and entities that provide internal audit services. The purpose of the Code of Ethics is to promote an ethical culture in the global profession of internal auditing.


Compliance

Adherence to policies, plans, procedures, laws, regulations, contracts, or other requirements.

 

Conflict of Interest

Any relationship that is, or appears to be, not in the best interest of the organization. A conflict of interest would prejudice an individualís ability to perform his or her duties and responsibilities objectively.

 

Consulting Services

Advisory and related client service activities, the nature and scope of which are agreed with the client, are intended to add value and improve an organizationís governance, risk management, and control processes without the internal auditor assuming management responsibility.Examples include counsel, advice, facilitation, and training.

 

Control

Any action taken by management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved.

 

Control Environment

The attitude and actions of the board and management regarding the significance of control within the organization. The control environment provides the discipline and structure for the achievement of the primary objectives of the system of internal control. The control environment includes the following elements:

         Integrity and ethical values.

         Managementís philosophy and operating style.

         Organizational structure.

         Assignment of authority and responsibility.

         Human resource policies and practices.

         Competence of personnel.

 

Control Processes

The policies, procedures, and activities that are part of a control framework, designed to ensure that risks are contained within the risk tolerances established by the risk management process.

 

Engagement

A specific internal audit assignment, task, or review activity, such as an internal audit, control self-assessment review, fraud examination, or consultancy. An engagement may include multiple tasks or activities designed to accomplish a specific set of related objectives.

 

Engagement Objectives

Broad statements developed by internal auditors that define intended engagement accomplishments.


Engagement Work Program

A document that lists the procedures to be followed during an engagement, designed to achieve the engagement plan.

 

External Service Provider

A person or firm outside of the organization that has special knowledge, skill, and experience in a particular discipline.

 

Fraud

Any illegal act characterized by deceit, concealment, or violation of trust. These acts are not dependent upon the threat of violence or physical force. Frauds are perpetrated by parties and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage.

 

Governance

The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives.

 

Impairment

Impairment to organizational independence and individual objectivity may include personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations (funding).

 

Independence

The freedom from conditions that threaten objectivity or the appearance of objectivity. Such threats to objectivity must be managed at the individual auditor, engagement, functional, and organizational levels.

 

Information Technology Controls

Controls that support business management and governance as well as provide general and technical controls over information technology infrastructures such as applications, information, infrastructure, and people.

 

Information Technology Governance

Consists of the leadership, organizational structures, and processes that ensure that the enterpriseís information technology sustains and supports the organizationís strategies and objectives.

 

Internal Audit Activity

A department, division, team of consultants, or other practitioner(s) that provides independent, objective assurance and consulting services designed to add value and improve an organizationís operations. The internal audit activity helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of governance, risk management and control processes.


International Professional Practices Framework

The conceptual framework that organizes the authoritative guidance promulgated by The IIA.Authoritative Guidance is comprised of two categories (1) mandatory and (2) endorsed and strongly recommended.

 

Must

The Standards use the word must to specify an unconditional requirement.

 

Objectivity

An unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they have an honest belief in their work product and that no significant quality compromises are made. Objectivity requires internal auditors not to subordinate their judgment on audit matters to others.

 

Residual Risk

The risk remaining after management takes action to reduce the impact and likelihood of an adverse event, including control activities in responding to a risk.

 

Risk

The possibility of an event occurring that will have an impact on the achievement of objectives.Risk is measured in terms of impact and likelihood.

 

Risk Appetite

The level of risk that an organization is willing to accept.

 

Risk Management

A process to identify, assess, manage, and control potential events or situations to provide reasonable assurance regarding the achievement of the organizationís objectives.

 

Should

The Standards use the word should where conformance is expected unless, when applying professional judgment, circumstances justify deviation.

 

Significance

The relative importance of a matter within the context in which it is being considered, including quantitative and qualitative factors, such as magnitude, nature, effect, relevance, and impact.Professional judgment assists internal auditors when evaluating the significance of matters within the context of the relevant objectives.

 

Standard

A professional pronouncement promulgated by the Internal Audit Standards Board that delineates the requirements for performing a broad range of internal audit activities, and for evaluating internal audit performance.

 

Technology-based Audit Techniques

Any automated audit tool, such as generalized audit software, test data generators, computerized audit programs, specialized audit utilities, and computer-assisted audit techniques (CAATs).



[1]The introductory section, the attribute and performance standards, and the code of ethics were all adopted from the International Standards for the Professional Practice of Internal Auditing (Standards). The Standards, The Institute of Internal Auditors, effective January 2009.

[2] Government Auditing Standards, Chapter 3.46, issued July 2007.

[3] Government Auditing Standards, Chapter 3.5, issued July 2007.